Question & Answer

In June 2014, the board of directors for McElroy Enterprises Inc. authorized the sale of $10,000,000 of corporate bonds. Jennifer Grayson, treasurer for McElroy Enterprises Inc., is concerned about the date when the bonds are issued. The company really needs the cash, but she is worried that if the bonds are issued before the company’s year-end (December 31, 2014) the additional liability will have an adverse effect on a number of important ratios. In July, she explains to company president William McElroy that if they delay issuing the bonds until after December 31 the bonds will not affect the ratios until December 31, 2015. They will have to report the issuance as a subsequent event which requires only footnote disclosure. Grayson expects that with expected improved financial performance in 2015, ratios should be better. Instructions (a) What are the ethical issues involved? (b) Should McElroy agree to the delay?

Try using the same type of analysis in the labour market to show what will happen if there is an increase in demand for labour. What is the ‘price’ of labour?

Give an example of how a business can reduce variable costs by increasing fixed costs.

In 2013, Chirac Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Chirac had revenues of $17,500 and expenses other than interest and taxes of $8,400 for 2014. (Assume that the tax rate is 40%.) Throughout 2014, 2,000 shares of common stock were outstanding; none of the bonds was converted or redeemed. Instructions (a) Compute diluted earnings per share for 2014. (b) Assume the same facts as those assumed for part (a), except that the 60 bonds were issued on September 1, 2014 (rather than in 2013), and none have been converted or redeemed. (c) Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted on July 1, 2014.

1. Trace through the effects in both factor and goods markets of the following:                (a) An increase in the productivity of a particular type of labour.                (b) An increase in the supply of a particular factor. 2. Show in each case how initially social efficiency will be destroyed and then how market adjustments will restore social efficiency.

When does the Fed use a stimulative monetary policy, and when does it use a restrictive monetary policy? What is a criticism of a stimulative monetary policy? What is the risk of using a monetary policy that is too restrictive? (LO2; LO3)

Compare and contrast §1245 recapture and §1250 recapture.

McIntyre Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling separately at 98. The market price of the warrants without the bonds cannot be determined. Use the incremental method to record the issuance of the bonds and warrants.

Identify the factors that affect a stock portfolio’s volatility and explain their effects. (LO4)

Describe some of the financial technologies that banks have incorporated into their daily operations. (LO4)

You run into Greg Norman at a party and begin discussing financial statements. Greg says, “I prefer the single-step income statement because the multiple-step format generally overstates income.” How should you respond to Greg?

1.              : What does it mean to be "true to yourself"? Is being true to yourself more important than achieving personal career success in a male-dominated company? Is it okay to enable the continuation of an "unhealthy" work environment for women? Why do you think the way you do about this?

Under what conditions should a short-term obligation be excluded from current liabilities?

Discuss why evaluating vertical equity simply based on tax rate structure may be less than optimal.

A leadscrew connected directly to a DC servomotor is the drive system for a positioning table. The leadscrew pitch = 4 mm. The optical encoder attached to the leadscrew emits 250 pulses/rev of the leadscrew. Determine (a) the control resolution of the system, expressed in linear travel distance of the table axis, (b) the frequency of the pulse train emitted by the optical encoder when the servomotor operates at 14 rev/s, and (c) the travel speed of the table at the operating speed of the motor.

1. If the government announced that it would, come what may, reduce the growth of money supply to zero next year, what (according to new classical economists) would happen? How might their answer be criticised? 2. For what reasons would a new classical economist support the policy of the Bank of England publishing its inflation forecasts and the minutes of the deliberations of the MPC?

The following table shows the average cost and average revenue (price) for a firm at each level of output.            1 2 3 4 5 6 7 8 9 10 AC (£) 7.00 5.00 4.00 3.30 3.00 3.10 3.50 4.20 5.00 6.00 AR (£) 10.00 9.50 9.00 8.50 8.00 7.50 7.00 6.50 6.00 5.50   (a)  Construct a table to show TC, MC, TR and MR at each level of output (put the figures for MC and MR mid-way between the output figures). (b)  Using MC and MR figures, find the profit-maximising output. (c)  Using TC and TR figures, check your answer to (b). (d)  Plot the AC, MC, AR and MR figures on a graph. (e)  Mark the profit-maximising output and the AR and AC at this output. (f)   Shade in an area to represent the level of profits at this output.

Reward plan structure Whistlestop Adventure has grown from a one-man operation into a large, soon to be listed, adventure clothing and equipment company. For much of its four-year history, Whistlestop has used one company-wide incentive plan that all employees and managers participated in. The plan is based on equal sharing of a bonus pool determined on the basis of 10 per cent of all profits earned over $2 million. As the company has grown, the benchmark profit figure has changed, but otherwise the plan has remained substantially the same. The company founder explained that the plan was structured this way to encourage an organisational and team view, an objective that has permeated the company’s activities since its beginning.   With the impending stock exchange listing, the newly constituted remuneration committee has been working on the development of new incentive plan for executives and managers. The brief from the board includes the requirement to ‘develop an incentive plan in line with company’s strategy of revenue growth through high-quality products and customer service, and align the interests of the new executive team with shareholders’.   Required (a) If you were a member of the remuneration committee of Whistlestop how would you suggest the incentive plan be structured to meet the requirements set by the board? (b) What are the dangers for Whistlestop in moving away from the current incentive plan to a new one? How could these dangers be overcome? (LO2 and 4)

Using the lead-tin phase diagram in Figure 6.3, determine the liquid and solid phase compositions for a nominal composition of 90% Sn and 10% Pb at 204°C (400°F).

What are some of the fuels used in oxyfuel cutting?

1.      : Press the board to devise a more comprehensive set of selection criteria—including test results, but also taking into account supervisory experience, ability to motivate employees, and knowledge of agency procedures—that can be explained and justified to the board and to employees.

LAA Inc. made a charitable donation of $100,000 to the Trevor Project (a qualifying charity) For the year, LAA reported taxable income of $550,000, which included a $100,000 charitable contribution deduction (before limitation) and a $50,000 dividends-received deduction. What is LAA Inc.’s charitable contribution deduction for the year?

Identify at least two situations in which important changes in value are not reported in the income statement.

What are some of the common examples of the conversion strategy?

Qualls Corporation reported 2014 earnings per share of $7.21. In 2015, Qualls reported earnings per share as follows. On income before extraordinary item $6.40 On extraordinary item 1.88 On net income $8.28Is the increase in earnings per share from $7.21 to $8.28 a favorable trend?